KBRA Financial Intelligence

Trump Administration Prepares to Overhaul Bank Regulations and Capital Rules

Trump Signs Day One Regulatory Freeze

Newly inaugurated President Trump signed a first batch of upcoming executive orders on January 20, including a Regulatory Freeze which blocks all regulatory agencies from proposing or issuing any rules that are not reviewed by a Trump-appointed executive. The action fell short of the relief sought by banking industry groups. In a January 10 letter to the president, the American Bankers Association (ABA), along with 52 state bankers associations, urged Trump to use his first day in office to “halt work on all open regulatory actions” being pursued by U.S. financial regulators.

Enforcement actions filed against banks on behalf of the FDIC and OCC yielded more than $860 million in civil money penalties (CMP) throughout 2024, marking the highest total since 2020. These enforcement actions, along with those by the Federal Reserve Board (FRB) and the National Credit Union Administration (NCUA), can be filtered by date, CMP amount, individual institution, and various other categories in KFI’s newly developed Dashboard, recently launched in beta. The Dashboard also includes Community Reinvestment Act (CRA) ratings, and deposit and branch mapping tools powered by Summary of Deposits (SOD) data.

CFPB Races to Beat the Clock

The Consumer Financial Protection Bureau (CFPB) oversees a broader range of financial institutions than the FDIC and OCC, but often targets banks with its most high-profile and costly enforcement actions. In a January letter to President Trump, the American Bankers Association (ABA) specifically cited the CFPB, highlighting its efforts to limit bank service fees such as overdraft fees as evidence of “over-regulation” in the financial sector in recent years. Consumer relief payments resulting from CFPB enforcement actions surged in 2022 and 2023, reaching their highest levels since 2015.

In November, KFI analyzed the potential impact of the CFPB’s new overdraft fee rule, which would cap overdraft fees at $5 for banks with assets exceeding $10 billion. This is a significant reduction from the current average of approximately $35, as reported by the CFPB. The rule, finalized in the final weeks of the Biden administration, is slated to take effect on October 1, 2025. However, with the likely replacement of CFPB Director Rohit Chopra by President Trump, the rule's implementation remains uncertain.

With impending turnover at the White House, the CFPB pushed to finalize its overdraft fee rule in the waning weeks of the Biden administration. The bureau also filed a spate of new lawsuits against a number of banks including Bank of America, N.A. (KFI Score: B), JPMorgan Chase Bank, N.A. (KFI Score: B), Wells Fargo Bank, N.A (KFI Score: B), Capital One, N.A. (KFI Score: C+), and Comerica Bank (KFI Score: B) throughout December and January.

The CFPB may face an existential threat in the president’s new Department of Government Efficiency (DOGE), a reorganization of the United States Digital Service and formally established by executive order on Monday. Tesla, X, and SpaceX CEO Elon Musk is expected to lead this new initiative, which aims to significantly reduce federal spending by eliminating specific regulatory measures and potentially entire agencies. In a recent tweet, Musk described the CFPB as “duplicative” and suggested it should be “deleted.”

Trump Appointees to Shape Basel 3 Implementation and Capital Rules

President Trump is widely expected to quickly replace the heads of financial regulatory agencies and he will also have the opportunity to appoint a new Vice Chair for Supervision at the Federal Reserve. Michael Barr, who resigned early from the Vice Chair position, will remain a governor on the Fed’s Board of Governors but will not complete his term as Vice Chair, originally set to run until July 2026.

Barr was a key figure in proposed adjustments to U.S. bank capital requirements, in accordance with the final stage of Basel 3 Endgame. Endgame seeks to update global capital standards among financial institutions, based on agreements within the Basel Committee on Banking Supervision. The terms of potential adjustments to capital adequacy ratios have to be agreed upon by the Fed, FDIC, and OCC. Efforts to implement Endgame have remained deadlocked for years without consensus on a final proposal yet agreed upon.

The most recent Fed guidance, presented by Barr last September, proposed a 9% increase in aggregate common equity tier 1 (CET1) capital requirements for banks with assets above $250 billion, a reduction from the previously suggested 19% hike. For banks with $100 billion-$250 billion in assets, the guidance would require unrealized gains and losses on their securities to be included in regulatory capital, likely resulting in a smaller increase of up to 4% in capital requirements for banks with significant trading activities. Acting Chair Travis Hill, who took over at the FDIC from Biden-era head Martin Gruenberg on January 20, recently expressed support for a Basel 3 Endgame implementation that is “roughly capital neutral,” while seeing the need for “more comprehensive changes” than the September 2024 proposition presented by Barr.

Barr’s unexpected decision to step down, combined with Trump’s mandate to nominate new heads of the FDIC and OCC, will further solidify the president’s influence over the shape of banking regulation over the next four years. While the Fed adopted a rule back in 2013 requiring some form of Basel 3 capital rules to be enshrined into its regulatory framework, there is no deadline mandating that the U.S. complete implementation by a specific date. Further, the U.S. maintains discretion regarding how much of Basel 3 will be adopted and to what degree it will be integrated into the U.S. financial system. If a second Trump administration retains the same deregulatory priorities of the first, a more comprehensive Basel 3 implementation could be deferred indefinitely or curbed in favor of more lenient proposals that give U.S. banks a competitive edge over their international counterparts. The most obvious opportunity cost of allowing U.S. financial institutions to lever up their capital more extensively is the risk that banks will be more easily pushed to the edge in the event of another unforeseen crisis within the sector.